Tuesday, March 24, 2015

Financial Thought of the Day March 24, 2015: Active Management Risk

The TIAA-CREF S&P 500 Index Fund Prospectus defines Active Management Risk as “The risk that Advisors’ strategy, investment selection or trading execution may cause the Fund to underperform relative to the benchmark index or mutual funds with similar investment objectives.”

Trading execution can run up brokerage fees and taxes which can eat into your returns. Owning shares in a mutual fund means you have a partial interest in a professionally designed portfolio. Within a mutual fund if an advisor trades a stock on your behalf it can incur fees and taxes in the portfolio serving as a drag on return. Picking stocks that you can hold for a long time can enhance your chances of better long-term gains. The same can be said about an advisor managing your mutual funds.

Go to stockdissector.com

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